Digging a pension hole

Springfield politics wreaked havoc on retirement code

The state’s pension plans are running dangerously low on funds, casualties of neglect and political machinations in Springfield. (E. Jason Wambsgans, Chicago Tribune)

SPRINGFIELD — — Illinois' pension system was in precarious enough shape in 1994 that Democrats and Republicans came together to solve a crisis threatening the state's financial future.

The agreement they forged was supposed to take politics out of pension funding by requiring a steady stream of payments over the next 50 years. The law was billed as an "extraordinary measure" that would finally force the Legislature to fulfill its "constitutional responsibility" to hundreds of thousands of state workers past, present and future.

The promise proved to be an empty one.

Since then, the system has fallen deeper in debt, with the shortfall growing to more than $85 billion. The agreement that was supposed to steady the system is in tatters and the state's pension plans are running dangerously low on funds, casualties of neglect and political machinations in Springfield.

At the center of the crisis is the state's pension code, more than 1,000 pages of laws that govern how the pension plans are funded, set benefit levels and lay out criteria for who qualifies.

"I can tell you that changes to that extent are extraordinary, if not unprecedented," said Keith Brainard, research director of the National Association of State Retirement Administrators. "These plans need an environment of consistency and predictability in order to succeed. Changes to that extent have the potential to create havoc."

The changes, which range from minor tweaks to substantive revisions, also make policing the system difficult. The Tribune and WGN-TV already have documented how union officials landed lucrative pension deals for themselves thanks to provisions their allies in the Legislature slipped into the pension code.

But they weren't the only ones gaming the system. Time and again, lawmakers have used the huge pools of money in the state's pension plans to avoid politically difficult decisions and hand out perks to supporters.

One reason for the large number of revisions to the code is that Illinois has more than a dozen sets of rules governing hundreds of pension plans scattered throughout the state. So whenever lawmakers want to apply a change to the entire system, multiple revisions are needed. The complexity also makes it difficult to track smaller changes and determine how they affect the system as a whole.

At times, the process of enacting pension legislation has been so shrouded in secrecy that it's nearly impossible to tell who was responsible for changes.

Not all revisions captured in the review by the Tribune and WGN-TV had a fiscal impact, but the legislative record shows that more than half of the pension laws passed during the last eight years came without any fiscal analysis.

"So basically we have a Legislature that has been making decisions that potentially have billions of dollars in impact without any objective information as to what the costs will be," said Laurence Msall, president of the nonpartisan Civic Federation. "It's a frighteningly cavalier approach."

House Speaker Michael Madigan, D-Chicago, and Senate President John Cullerton, D-Chicago, declined to comment for this story.

In an e-mail, Madigan's spokesman, Steve Brown, disputed whether all the changes to the pension code were harmful. "I was unable to find anyone who felt the number of changes in a state program had any particular bearing on anything or was a predictor of anything," he wrote.

Spokesmen for both legislative leaders pointed out that recent changes to the pension code have decreased the cost of the state's pension system.

The most significant of those changes was a 2010 plan, known as Tier 2 and sponsored by Madigan and Cullerton, that cut costs over the long term by lowering benefits for those hired after Jan. 1, 2011. During the next three decades, the move is projected to lower the state's contributions by more than $70 billion and cut the total pension liabilities nearly in half, by $256 billion.

Although the bulk of the savings from Tier 2 won't begin for a number of years, the state began counting them right away and, in the process, lowered the amount it had to contribute into the funds.

Even with the savings, the state still will be hard-pressed to make its pension contributions going forward. A decade ago, contributions to the pension system cost the state about $1 billion. Next year, they are expected to reach more than $5 billion, according to the governor's budget office.